Dealing with debt

Student loans weigh down recent graduates

Tom Kramer, executive director of the Richmond-based student-advocacy group Virginia21, says the most pressing issues on the minds of college students are the size of their debts and their prospects for finding a job after graduation.

They have good reason to be concerned.

College student debt in the U.S. now totals $1 trillion, an amount that exceeds the nation’s credit-card debt. In Virginia, approximately 58 percent of the college graduates in the class of 2010 carried debt, owing an average of $23, 327.

Making the debt problem worse is the fact that unemployment among college graduates under the age of 24 is 9.1 percent, the highest rate in history.
The precarious financial situation of these young people is making many of their siblings think twice about the cost of going to college.

“My youngest brother, looking at my debt, said that was a mistake he didn’t want to make,” says Kramer, a graduate of the College of William & Mary whose student debts total $60,000.

Rising college debt, coupled with a dicey job market, has created a generation of recent graduates who can’t afford to live on their own. They have been coined the “Boomerang Generation” for their tendency to move in with their parents.

A December study by the Pew Research Center found that “39 percent of all adults ages 18 to 34 say they either live with their parents now or moved back in temporarily in recent years,” including 53 percent of those 18 to 24.

Barry Simmons, director of financial aid at Virginia Tech, says that to a large degree the amount of student debt that has been racked up by students and their families is unprecedented.

“Some of this is due more recently to the greater availability of student loans,” Simmons said. “It’s like the ‘Field of Dreams.’ If you make loans available, they will come get them.”
(Because of last-minute action by Congress, the interest rate on subsidized federal Stafford loans will remain at 3.4 percent for one more year. The interest rate had been scheduled to double to 6.8 percent this year.)

The State Council for Higher Education in Virginia reported last year that the average total cost of an in-state undergraduate student living on campus equals 43.7 percent of the commonwealth’s per capita disposable income.

Meanwhile, the Federal Reserve’s recent Survey of Consumer Finances found that median family net worth (the difference between the value of assets and liabilities) dropped from $126,400 in 2007 to $77,300 in 2010.

Earlier this year, Virginia21 ran a campaign — “What’s your Number” —to raise awareness about the student debt crisis. Hundreds of students signed petitions and posted online the amount of debt they owed.

One goal of the campaign was to persuade lawmakers to pass Gov. Bob McDonnell’s proposal to increase spending on higher education by $100 million a year over the next biennium.

“The positive thing for us is that the governor and General Assembly in Virginia are trying to do something [about student debt],” Kramer says.

Now, with more funding in the upcoming biennium for higher education, the governor has been pressing college presidents and boards to keep tuition increases as low as possible, tying them to the Consumer Price Index, which is increasing at a rate of about 3 percent.

Two years ago, the governor reprimanded the Virginia Commonwealth University Board of Visitors when it raised tuition rates by a jaw-dropping 24 percent to help compensate for a loss of state funding.

This year, under the university’s six-year plan, tuition was set to go up 9.5 percent. But after the governor asked all institutions to keep the lid on tuition increases, VCU raised tuition and mandatory fees only 3.87 percent for in-state students. It was the lowest percentage tuition increase at the school in 11 years.

Nationally, the U.S. Department of Education says that the average tuition of a four-year college climbed 15 percent between 2008 and 2010, spurred by state budget cuts for higher education.

To add transparency to the borrowing process, the Obama administration announced in June that it had persuaded the state university systems of Maryland, New York, Massachusetts and Texas — along with six individual institutions (none in Virginia) — to disclose important financial information to entering freshmen, beginning in the 2013-14 school year.

That information includes: (1) how much one year of college will cost; (2) a clear distinction between grants, scholarship and loans; (3) the estimated monthly payments for the federal student loans that graduates will likely owe; and (4) a report on the percentages of students who graduate and repay their loans without defaulting.

The federal initiative has been dubbed “Know Before You Owe.”

In addition, numerous legislators and college advocacy groups have suggested that students go to community colleges for two years before enrolling in a four-year institution as a way to sharply reduce college borrowing.

On average, the cost of going to a year of community college is less than $5,000, one-tenth the cost of some elite private institutions and one-third the cost of many public four-year colleges and universities in Virginia.

The chancellor of the Virginia Community College System, Glenn Dubois, and his counterparts in Louisiana, North Carolina and Indiana have formed a coalition, named Rebuilding the Middle Class, to tout the value of community college education in reducing college debt and moving students on the ramp to a four-year degree.

In Virginia, about two-thirds of undergraduates at public colleges and universities are enrolled in community colleges, and 40 percent of next year’s college graduates will have taken courses at a community college, according to DuBois.

The trend toward community college appears to be catching on even among relatively affluent households.

A 2011 study by Sallie Mae, a giant in the student loan industry, found that 22 percent of students from households earning $100,000 or more attended community colleges in the 2010-11 academic year, the highest rate in four years.

Community college has figured into the plans of Kramer’s two younger brothers.

Instead of trying to enroll in a four-year college, his youngest brother began looking for work in the shipyards of Hampton Roads while taking classes at Thomas Nelson Community College in Hampton.

The brother is making a good income as a pipe fitter in the shipyards. He, too, has started community college classes.

Kramer recently got married, and his wife also has student debt. Their combined debt, he laments, could determine what kind of house they are able to afford and perhaps even how many children they’ll be able to have.

“I borrowed my way through college somewhat naively,” Kramer says. “I was like a lot of students. I knew I was borrowing, but I didn’t know how much until I finished.”